## Facts

- Debtors filed a Chapter 13 case with a purchase-money auto loan secured by a motor vehicle acquired for personal use within 910 days before the petition date.
- The claim fell within the unnumbered “hanging paragraph” following 11 U.S.C. § 1325(a)(9), which makes 11 U.S.C. § 506 inapplicable to such claims for purposes of § 1325(a)(5).
- The debtors proposed a plan to surrender the vehicle under § 1325(a)(5)(C) and treat the surrender as full satisfaction of the creditor’s claim, providing no payment on any post-sale deficiency.
- The bankruptcy court declined to confirm the plan because it did not provide for payment of any deficiency remaining after disposition of the collateral.
- The matter proceeded on direct appeal to the U.S. Court of Appeals for the Seventh Circuit under 28 U.S.C. § 158(d)(2).

## Issues

1. Whether, for a “910-day” vehicle claim governed by the hanging paragraph, surrender of the collateral under § 1325(a)(5)(C) fully satisfies the debt and bars any unsecured deficiency claim.
2. Whether making § 506 inapplicable eliminates a secured creditor’s contractual and state-law right to recover a deficiency after surrender and sale of the collateral.

## Decision

- The Seventh Circuit affirmed the denial of plan confirmation.
- The court held that surrender of a 910-day vehicle under § 1325(a)(5)(C) does not extinguish the underlying recourse obligation.
- The creditor may assert an unsecured deficiency claim to the extent a deficiency would exist under the parties’ contract and applicable state law after disposition of the collateral.
- The court concluded that the hanging paragraph removes § 506 valuation and bifurcation from the analysis but does not convert a recourse loan into a nonrecourse obligation.

## Legal Principles

- A secured creditor’s entitlement to a deficiency judgment is determined by contract and state law, not by 11 U.S.C. § 506.
- The hanging paragraph’s directive that § 506 “shall not apply” to certain motor-vehicle purchase-money claims prevents Chapter 13 cramdown valuation for those claims but does not eliminate liability for any shortfall after surrender.
- Under the general bankruptcy rule that state law defines property and contract rights absent clear federal displacement, deficiency rights survive unless the Bankruptcy Code expressly abrogates them.
- Section 1325(a)(5)(C) authorizes surrender as a form of plan treatment, but it does not state that surrender satisfies the entire debt or bars an unsecured claim for any remaining balance.
- Interpreting the hanging paragraph to require “surrender in full satisfaction” would contradict the statute’s evident function of strengthening the position of certain secured creditors in Chapter 13.

## Conclusion

In a Chapter 13 case involving a 910-day vehicle claim, surrender of the vehicle under § 1325(a)(5)(C) does not, by itself, eliminate the creditor’s right to an unsecured deficiency claim; § 506’s inapplicability removes valuation-based bifurcation but leaves deficiency rights to be determined by the parties’ contract and state law.


In re Wright, 492 F.3d 829 (7th Cir. 2007)